Economic development

Economic development

Global economy

The outlook for the global economy continued to brighten as it put 2013 behind it and moved into 2014. Factors which had put the world’s economy under appreciable strain over the past two years began to diminish in significance: in the United States the process of consolidation continued apace, while in the Eurozone confidence solidified in the survival of the single currency area. The Kiel Institute for the World Economy expects the effects of expansionary monetary policy to be felt progressively more strongly as confidence grows among households and the business community. By and large, fiscal policy will also be less restrictive than in recent years.

In its forecast for 2014, the Kiel Institute for the World Economy expects that central banks in mature national economies will stand by their expansionary monetary policy. Given these framework conditions, experts anticipate accelerated growth of 3.7% for the global economy in the coming year.

Growth in gross domestic product (GDP)
in %2013
(forecast from previous year)
(provisional calculation)
Economic areas
World economy3.4%2.9%3.7%
Selected countries
United States1.5%1.6%2.3%

United States

The effect of monetary stimuli is likely to be felt increasingly strongly in the US in the course of the year, causing the economy to pick up further momentum. The Kiel Institute for the World Economy anticipates a growth rate of 2.3% in the year ahead. Experts believe that the real estate market will also benefit greatly from this development. Increasing debt reduction and further improvement on the labour market will boost private consumption. On the corporate side, it can be assumed that the positive framework conditions will bring greater investment confidence.

Markets are prepared for the fresh fiscal restrictions that take effect in the US budget at the beginning of 2014, as a consequence of which the restraining effect on the economy will be far slighter than in previous years. In view of the improved state of the economy, the budget deficit in the 2014 financial year will continue to shrink.


Within the Eurozone the consolidation processes in the crisis-affected countries will further curb domestic demand, with the result that economic growth will likely be comparatively weak in 2014. In addition, problems in the banking sector which hinder the transfer of monetary stimuli to the markets persist. Despite this, economic activity in the Eurozone will gradually gather steam. The Kiel Institute for the World Economy forecasts growth of 0.9% for 2014. Unemployment has passed its peak and will slowly subside overall; the crisis-hit countries will remain exceptions here for the time being. In the United Kingdom, too, the economy is picking up; a sustained upturn with a growth rate of 2.0% for 2014 is possible here.


The economic data in Germany are pointing towards expansion. After the muted growth in the past year, economic activity is likely to gather further momentum in 2014. The Kiel Institute for the World Economy anticipates a growth rate of 1.7%. As part of this upturn the volume of replacement and expansion investments, some of which had been deferred, is likely to increase markedly. The extremely favourable financing environment will further stimulate residential construction and support the emerging real estate boom. Exports will enjoy a brisk revival in light of improved economic conditions abroad. Foreign trade will not give rise to any appreciable production effects.

Assisted by a favourable situation on the labour market, private households will significantly step up their consumer spending. Despite this positive tone on the employment front, the number of jobseekers will likely still remain just under three million.

China, India, Japan

The growth in potential output will slow in a number of emerging economies, although it should remain on a high level. The Kiel Institute for the World Economy expects China’s growth rate to retreat slightly in the coming year; it will probably stand at 7.5% in 2014. Particularly in China, the figures published by the ECB suggest that the growth potential for the coming years will follow a downward trend. Given that the population of working age is shrinking in size, the gradual elimination of demand imbalances will lead to a shift in capital spending towards private consumption. For India, too, the forecast of 5% for the coming year is well short of the higher levels of prior years.

The outlook for Japan is that the current expansion will be sustained over a protracted period. The growth anticipated for 2014 is in the order of 1.5%.

Capital markets

All in all, 2014 is likely to be a solid year on the financial markets, driven by further recovery in the global economy and stabilisation in public finances. While we expect the European Central Bank to initially maintain its low interest rate policy, the US Federal Reserve should continue its progressive pull-back from active market intervention, although it will likely leave interest rate policy unchanged. In 2014 international bond markets will again see unusually low interest rate levels. In the relevant currency areas for our company we expect at most moderate increases in key interest rates. With respect to treasury bonds issued by the countries of the European Monetary Union with higher risk premiums, which have been the focus of so much attention of late, the stabilisation that began to take hold in 2013 may be sustained. Last but not least, the incremental strategy for resolving the Euro debt crisis may lead to a sometimes volatile capital market environment. While the necessary consolidation of public finances in the western world will continue to preoccupy the economic environment, it may, however, overcompensate due to resurgent domestic consumption and investment demand. Overall, the risks to the world economy have not really diminished, but the opportunities are greater. Broad diversification within the investment portfolio will therefore continue to be of considerable importance in the current financial year.

Insurance industry

The situation in the international insurance industry is likely to change only marginally in 2014. Despite a challenging general environment, it is likely to remain on a broadly stable course – despite the fact that investment income will probably move lower again as a reflection of the difficult investment conditions on capital markets. In order to be able to generate adequate investment income, (re)insurers may continue to shift portfolios into other asset classes, e.g. in the infrastructure sector, or adjust products even more specifically in line with market circumstances. For the German life (re)insurance market this means having to establish further legally prescribed additional reserves for policies with guarantees; in the companies’ own assessment, however, building up such a financial buffer would be feasible.

Generating growth will likely continue to be a dominant topic despite sustained competition. Industry experts anticipate stimuli for both non-life and life and health reinsurance first and foremost from growth markets: attractive business potential should be available here in view of rising population numbers and the associated urbanisation. If major losses – especially from natural disasters – are again absent in 2014, the market may soften and hence usher in further premium reductions. The market for catastrophe bonds (ILS), which gives investors with strong capital resources access to the (re)insurance market, may further exacerbate the pressure on prices. Now more than ever, therefore, the industry will likely attach importance to prices and conditions that appropriately reflect the risks. Moderate nominal premium growth is anticipated for the German insurance industry in 2014, although the overall expectation is slightly below that of the previous year.

Strengthening the risk-bearing capacity of insurers should remain a central concern in 2014. The currently ongoing adjustment of European regulations, especially with respect to Solvency II, as well as improvements in compliance and risk management systems will likely enhance the ability of insurers to withstand crises. These requirements affect not only mature markets but also increasingly growth markets around the world, where insurance reforms and solvency rules are being adopted and implemented in individual countries. The resulting challenges should at the same time open up fresh opportunities for (re)insurers.


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